Don't panic – what happens if you miss a mortgage payment?
Mortgage rates have risen to their highest level in 14 years, putting more pressure on homeowners to pay off their mortgages quickly.
So what can you do if you're having problems making your mortgage payments?
Understanding Mortgage Types And Their Costs
Different types of mortgages are available, but they have all become more costly in recent months.
When the Bank of England sets its benchmark interest rate, tracker rates tend to rise or fall in step.
A standard variable rate (SVR) is a variable mortgage that changes at the discretion of the lender. It's linked to the Bank of England's base rate, but it's not directly linked.
Fixed-rate mortgages (FRMs), which are popular with nearly three-quarters of mortgage customers, lock in an interest rate for a certain number of years after which borrowers can either remortgage or be automatically moved onto an SVR.
How Mortgage rates have changed
The rising cost of mortgages has put pressure on the 1.6 million people who have tracker or variable deals.
As homeowners come to the end of their fixed-rate mortgages, they may be in for a shock when they see how much more they have to pay every month.
The Bank of England said that people with variable-rate mortgages could end up paying an extra £3,000 a year.
Making Sense of Mortgage Rates
That's hard to say. Analysts expect the Bank of England to raise interest rates to about 4.75% next year.
For anyone on tracker mortgages, those higher repayments are on the way.
Recent data shows that rates on fixed-rate mortgages have fallen slightly in recent weeks.
Home prices have been falling as well, as higher interest rates have made it more difficult for potential buyers to secure financing.
Prices fell by 2.3% in November, the biggest monthly fall since November 2001, according to the Halifax.
The decade-long era of ultra-low mortgage rates may be coming to an end.
Things To Tell Yourself To Keep Your Mind At Ease
There are fewer choices, but you can still find something that will work for you.
The Treasury, regulators and the mortgage industry have reached an agreement that will allow people to switch to a new fixed-rate mortgage without incurring an affordability test as long as they are up to date with payments on their current deal.
What can happen if you miss a mortgage payment?
If you are two or more months behind with your mortgage payments, you are officially in arrears.
In order for a lender to foreclose on your home, they must make reasonable attempts to reach an agreement with you.
The Financial Conduct Authority (FCA) - the regulator for mortgage lenders - has written to chief executives to remind them of their obligation to treat customers fairly.
Customers should contact their lender as soon as they realise they are going to struggle to make repayments. Trained and experienced staff will be able to help.
Lender 101 – The Very First Things They Will Do
Within 15 working days of falling into arrears, your lender must:
- Tell how much your arrears add up to
- List missed payments
- Explain what you still owe on your mortgage
- Outline any charges
If you're having trouble paying your mortgage, your lender must consider letting you change how you pay by making lower monthly payments for a while.
As a rule, the FCA advises that any agreement you come to with a lender will be reflected in your credit file and can affect your ability to borrow money in the future.
Your lender might allow you to refinance your mortgage or extend the term of the loan.
A Mortgage Holiday: Can You Take A Break From Making Payments?
A mortgage payment holiday allows you to defer mortgage payments - but the time period is limited.
Lenders may offer this option, depending on individual circumstances. During the Covid pandemic, however, lenders offered less support than they had in the past.
This will appear on your credit file.
The devolved governments run a variety of mortgage-support schemes.
Will I Lose My Home?
If you get behind on your mortgage payments, the lender might start proceedings to repossess your house.
Repossessions have become less frequent over time.
You can expect to wait about two years before a lender can take such action against you.
If you suspect that your home is at risk, it's worth talking to a free independent debt adviser.